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TMI Blog2021 (10) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... disputedly applied to consistently by the assessee in a long term project, the actual profit/loss will come on record in the year of completion of contract when all the undisputed losses and gains would be adjusted. When percentage completion method, which is in accordance with AS-7, has been consistently applied by the assessee and has been accepted by the Department and the expenditures incurred by the assessee are admissible one, we find no ground to interfere into the findings returned by the ld. CIT (A). Set off of the brought forward losses against the income from other sources - CIT-A allowed claim - HELD THAT:- Perusal of the impugned order passed by the ld. CIT (A) goes to prove that this issue has been decided on the basis of facts brought on record by the parties to the appeals. When the core business of the assessee company is construction of power plant and purchasing the FDRs for availability of the easy funds for smooth functioning of the business, earning of interest on the FDRs on the funds invested from the business funds cannot be disallowed on the ground that earning interest on the FDRs is not part of the business of the assessee. Ld. CIT (A) has rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he circumstances of the case, the Ld. CIT (A) has erred in law that the losses for future years cannot be allowed as deduction even if the same have been computed in conjunction with AS-7 notified by ICAI, as AS-7 has not been notified in the Act. 3. On the facts and under the circumstances of the case, the Ld. CIT (A) has erred in allowing to set off the b/f loss against the income from other sources to the tune of ₹ 2,56,36,785/-. As the business of the assessee is construction of power plants and not to earn interest by investing in FDRs etc. 3. Assessee company is a wholly owned subsidiary of Power Machine Russia working as a EPC company for large power projects and its activities are engineering for designing the layout of plant, outside procurement whereby the assessee procures various goods and material locally in India and supplies the same under its contract with end-customers at pre-agreed prices and construction in respect of which assessee largely works with independent sub-contractor. 4. During the scrutiny proceedings, Assessing Officer (AO) noticed that the assessee has debited provisions of anticipated losses of ₹ 70,01,34,762/- ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee by returning following findings :- 6.3. The third issue in appeal is regarding disallowance of provision for anticipated losses. (i) On this issue the assessee has strongly relied on various decisions of different High Court and ITAT in its favour and mainly on the case of jurisdictional High Court of Delhi in the case of Triveni Engg. and Industries Ltd. vide order dated 29.11.2010 for AY 2000-01 (336 ITR 374 Delhi). The relevant portion of the order are as under: 1. Though various questions of law were proposed in this appeal, the appeal was admitted on the following substantial questions of law: i. Whether ITAT was correct in law in allowing provision made by the assessee for future losses that may occur on account of different project works undertaken by it? ii. Whether ITAT was correct in law in holding that the provision for losses was allowable as the assessee was following completed contract method of accounting? 11. The learned Counsel for the revenue may be correct in stating the proposition of law, generally. No doubt, unless the expenditure is actually incurred or it is accrued in the relevant year. It would not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recognised. Same has been done in this year also where the revenue gain is shown as ₹ 22 crore. (iii) It is not in dispute that the AO has accepted the method of accounting. The only ground of expenditure not being allowed was holding that the same was contingent in nature as no such actual expenditure was incurred in the said year and was only on the basis of estimates. However, it is observed that the assessee has been following, consistent and regular method of accounting which was uniform through the years and also being accepted by the department. The method can be rejected by the AO only if he finds that the accounting of the assessee is not correct or is Incomplete or that the method has been changed without any justification. (iv) In my opinion therefore, the order of the Hon'ble High Court in the above mentioned case squarely applies to the facts of the assessee's case also. In view of the above discussion and the facts of the case, it is held that assessee's claim for provisions for anticipated loss which was made in accordance with the guidelines of AS-7 and duly debited in the audited accounts of the company is allowable expenditure. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come of ₹ 2,56,36,785/- from FDRs purchased during the course of business. It is the case of the assessee that for smooth running of its core business activities, funds are required on short notice and moreover all the fixed deposits have been purchased out of the business funds available with the assessee and has been utilized for actual business purpose. Ld. CIT (A) allowed the set off of brought forward losses returning the following findings :- 6.3 The assessee has classified in its Return of Income an amount of ₹ 2,56,36,785/- as income from other sources . The AO has therefore not allowed set off against this income of the business loss of earlier years. The assessee's contention is that this was classified as income from other sources by mistake and since claim was made by it and set off was also done, the decision in the case of Goetze India Pvt. Ltd. of the Hon'ble Supreme Court will not apply as it is not a fresh claim. Further, the assessee has also claimed that interest was on the FDs which constituted margin money for providing bank guarantee to the customers and in this manner was inextricably linked with the business of the assessee. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. The assessee claimed that it has funds which it derived from business and which are used only in business and for no other purpose. If they are spare funds, then they are deposited in banks and, hence, it is clear that this income is also business income . The company has not come from Italy to make bank deposits in India but has come to carry on business. If at any time it has spare funds it prefers not to keep the same idle but makes deposits in banks which give some income. This also is, therefore, business income, and for the purpose of set-off has not to be treated as separate from business income . 9. ..Set off had to be granted and could not be refused merely because interest income is taxed under a separate head. (iv) The decision in the above case also applies to the case of the assessee specifically where the income has been treated as income from other sources. Even in such a case the Hon'ble High Court has allowed the set off. The other case law quoted by the assessee support the contention of the assessee that where the deposit of money is directly linked with the business activity it would be held as having an inextricable nexu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... truction of power plant and purchasing the FDRs for availability of the easy funds for smooth functioning of the business, earning of interest on the FDRs on the funds invested from the business funds cannot be disallowed on the ground that earning interest on the FDRs is not part of the business of the assessee. 17. Ld. CIT (A) has rightly decided that, although interest income has been shown as income from other sources it is still a part of the business income in nature as in all other assessment years and is available for set off of any losses from the previous year. So, investing surplus funds in FDRs during the business activities is part of primary business of the assessee company to make easy availability of funds for core activities and as such, interest income has been rightly treated as business income by the ld. CIT (A). Consequently, we find no ground to interfere into the findings returned by the ld. CIT (A), hence Ground No.3 of Assessment Year 2012-13 is determined against the Revenue. 17. Resultantly, both the appeals for AYs 2011-12 2012-13 filed by the Revenue are dismissed. Order pronounced in open court on this 30th day of September, 2021. - - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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